NFTs have received significant hype during the previous bull run. However, do you know how to value an NFT? Let’s find out.
Understanding the valuation of an NFT
There is no fixed set of rules for determining the value of an NFT. We can find multiple courses and tutorials on determining an asset’s value. However, we cannot use the same rules for determining an NFT’s value. It is very hard to guess the value of an NFT by just looking at the metrics. Don’t worry; we are here to make it simpler for you. Here are some factors that determine the value of an NFT.
Factors determining the value of an NFT
1) Rarity
Rarity is directly proportional to the demand of the NFT. Determining the rarity of an NFT will require you to look at its creators too. If the NFT is backed by top-grade celebrities, it is considered to be rarer than some randomly backed NFTs. Jack Dorsey’s first NFT can be an example of this.
2) Utility
Utility attracts investors to buy their respective NFTs. The investor feels that the NFT he bought is value for money. For instance, NFTs could be used for tokenizing real estate, precious metals, and even securities, to represent virtual land or game assets, and in many more ways. Such NFTs will attract more investors as compared to NFTs with no utilities.
3) Tangibility
NFTs that have an element of Tangibility are more valuable than those with no tangibility. For instance an NFT that is linked to real estate will have more value as it has a tangible asset backing it. NFTs holding tangible value are the perfect fit for short-term as well as long-term trading. Some NFTs, like tickets, might have expiry dates, while others, such as those representing real estate, can cultivate more value over time.
4) Interoperability
A key factor while valuing an NFT is interoperability, i.e., the ability to use the tokens in different applications. For instance, if the same weapon can be used in different games, there are more chances that the NFT will be valued higher than that of an NFT that is limited to just one game.
5) Ownership history
Ownership history also contributes to the value of an NFT. If an NFT has been issued by some well-known celebrities, then it will derive a higher value than NFTs who were issued by random individuals. Reselling NFTs previously held by influential people is another way to gain traction. Marketplaces and sellers can help buyers find information about previous owners of NFTs by providing a simple tracking interface.
As we have seen, there are many different factors that can affect the valuation of an NFT. While determining the value of an NFT, all these factors should be considered as they can significantly impact the valuation of an NFT.
